The accelerating decline of the USA

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com, or follow me on Twitter.

I sometimes think that a lot of focus is given to Silicon Valley so the public won’t notice how much the USA has declined:

In the early 2000s, the telecom equipment market began to recover from the recession. Lucent’s new strategy, as Mottl put it, was to seek “margin” by offshoring production to China, continuing layoffs of American workers and hiring abroad. At first, it was the simpler parts of the telecom equipment, the boxes and assembly, but soon contract manufacturers in China were making virtually all of it. American telecom capacity would never return.

Lucent didn’t recover its former position. Chinese entrants, subsidized heavily by the Chinese state and using Western technology, underpriced Western companies. American policymakers, unconcerned with industrial capacity, allowed Chinese companies to capture market share despite the predatory subsidies and stolen technology. In 2006, French telecom equipment maker Alcatel bought Lucent, signifying the end of American control of Bell Labs. Today, Huawei, with state backing, dominates the market.

The erosion of much of the American industrial and defense industrial base proceeded like Lucent. First, in the 1980s and 1990s, Wall Street financiers focused on short-term profits, market power, and executive pay-outs over core competencies like research and production, often rolling an industry up into a monopoly producer. Then, in the 2000s, they offshored production to the lowest cost producer. This finance-centric approach opened the door to the Chinese government’s ability to strategically pick off industrial capacity by subsidizing its producers. Hand over cash to Wall Street, and China could get the American crown jewels.

The loss of manufacturing capacity has been devastating for American research capacity. “Innovation doesn’t just hover above the Great Plains,” Mottl said. “It is built on steady incremental changes and knowledge learned out of basic manufacturing.” Telecommunications equipment is dual use, meaning it can be used for both commercial and military purposes. The loss of an industrial base in telecom equipment meant that the American national security apparatus lost military capacity.

This loss goes well beyond telecom equipment. Talking to small manufacturers and distributors who operate in the guts of our industrial systems offers a perspective on the danger of this process of financial predation and offshoring. Bill Hickey, who headed his family’s metal distributor, processor, and fabricator, has been watching the collapse for decades. Hickey sells to “everyone who uses steel,” from truck, car, and agricultural equipment manufacturers to stadiums and the military.

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